Mitt Romney wasn’t the only loser in last week’s U.S. election. Chalk up the traditional late December stock market rally as one of the victims of collateral damage.

A worker on the floor of the New York Stock Exchange the day after the U.S. election.

By:Gordon Pape Published on Sun Nov 11 2012

Mitt Romney wasn’t the only loser in last week’s U.S. election. Chalk up Santa Claus as one of the victims of collateral damage.

In a typical year, stock markets enjoy what has come to be known as a “Santa Claus rally.” This normally occurs in late December and can produce some tidy profits for investors. According to the Stock Trader’s Almanac, since 1989 the S&P 500 Index has gained an average of 1.6 per cent in the week between Christmas and New Year’s.

I don’t think it will happen this year and the election results are the reason why.

Essentially, we ended with a stalemate. President Obama must still contend with a Republican-dominated House of Representatives in which the ideologically-driven Tea Party faction will continue to wield a lot of influence.

That’s the same lethal combination that led to last summer’s debt ceiling crisis in Washington which culminated with Standard and Poor’s stripping the U.S. of its coveted AAA credit rating.

This time around, the battle will be over the so-called “fiscal cliff.” That involves a combination of spending cuts and tax increases that will take effect on January 1 unless Congress moves to stop it. Economists estimate that it could knock as much as 4 per cent off the American GDP and both Prime Minister Harper and Finance Minister Flaherty have warned that Canada will feel the fallout.

Stock markets hate uncertainty, so as long as the fiscal cliff looms investors are unlikely to go on a buying spree. Wall St. desperately wanted Mitt Romney to win, if only because he would have a better chance of working with a Republican House to avoid disaster. Investors left no doubt about the depth of their disappointment on the morning after, pummeling U.S. markets. By noon, the Dow had lost more than 300 points.

If last summer’s fiasco is any indication, the uncertainty over the fiscal cliff won’t be resolved until the last minute — assuming there is an acceptable compromise out there somewhere, which is no sure thing. If it should happen sooner rather than later, Santa Claus may be resurrected. If not, it will be a bleak Christmas.

So what should investors be doing while the drama plays out in Washington? My advice is to stick with stocks that are likely to hold up well regardless of what happens and take advantage of buying opportunities. Here are some suggestions.

BCE Inc. (TSX, NYSE: BCE). While most stocks were being hammered post-election, BCE held its ground, only giving back a few pennies. The telecommunications giant is in great financial shape, has an excellent dividend history, and the shares were yielding 5.3 per cent at the time of writing.

AT&T (NYSE: T). America’s biggest telecommunications company was among the casualties in the Wall Street sell-off, making the shares a bargain as far as I’m concerned. It’s a purer telecom play than BCE, which has a large media component, and also offers a good yield of 5.2%.

Walmart (NYSE: WMT). When times are tough, people search for bargains and Walmart delivers them on everything from food to fashions. It doesn’t offer a great yield (2.2%) but the share price has historically held up well even in the toughest conditions.

Dollarama (TSX: DOL). While most stocks were taking a beating, this one actually gained a little ground in the election aftermath. Think of it as Walmart Lite — the place you go when you can’t even afford Walmart’s low prices. People will be buying a lot of Christmas gifts there.

Fortis (TSX: FTS). Living without electricity for any length of time is miserable as the victims of Hurricane Sandy have learned. Fortis keeps the lights on in five Canadian provinces and two Caribbean countries as well as being the main retail natural gas supplier in British Columbia. The share price is very stable and Fortis has the longest history of consecutive annual dividend increases of any Canadian company.

Weyerhaeuser (NYSE: WY). The U.S. housing recovery seems to have finally taken hold and this huge forest products company is one of the prime beneficiaries. Investors received a 13 per cent dividend boost in October and the shares yield 2.5 per cent. This was one of the few U.S. stocks not hammered in the post-election sell-off.

Investors who are willing to take a little more risk should consider shares of gold mining royalty company Franco-Nevada (TSX, NYSE: FNV), which were up more than 5 per cent the morning after the election. President Obama’s re-election means that the U.S. Federal Reserve Board’s current stimulus program will continue (fiscally conservative Republicans oppose it). One of the effects is expected to be a gradual devaluation of the U.S. dollar, which would be positive for bullion prices. Franco-Nevada shares have performed much better than traditional gold miners because the company does not have to undertake the risks and costs of exploration and development.

One sector to be wary of for now is energy, where stocks sold off following the election. While it is generally expected that President Obama will eventually approve the Keystone XL pipeline, there are no guarantees (with Mr. Romney it would have been a slam dunk). If Keystone is rejected, it means our oilpatch will have to cope with major delivery problems and discounted pricing for years to come.

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